By Andy Bannister

The company is now posed to relaunch itself in Europe under the auspices of new Chinese owner Nanjing Automobile, which has big plans for the future.

The famous MG initials, originally standing for Morris Garages, have been rather dubiously rebranded Modern Gentleman, presumably reflecting the hoped-for target audience for the marque.

Nanjing has, however, recently shown pictures of a lightly revamped MG TF coming down the Longbridge production line. Numbers though are pitifully small and the cars are assembled from Chinese bits, leading to accusations of shamelessly exploiting a British heritage which no longer exists.

But how would that happen?

By Brendan Moore

09.27.2007

BMW made public its strategic review today, and as part of that review disclosed that it is open to adding a fourth brand, either through acquisition or internal development. The new brand would join the current lineup of BMW, Mini and Rolls-Royce.

The first name that comes to mind after BMW’s statement is Volvo, since Ford is still interested in selling the Swedish car company, but BMW put paid to that today, saying that it had ruled out an acquisition of Volvo and was focusing on other opportunities.

BMW is currently the world’s largest premium auto manufacturer, but Audi is coming on very strong, and BMW will have to work hard to maintain their number one spot in the future. BMW has stated that they intend to be selling more than 2 million vehicles a year worldwide by 2020, and the probability of the company doing that is slim without both product and brand expansion.

When looked at from this perspective, the acquisition of Volvo by BMW seemed like an awfully good match, but with that off the table, it is more difficult to imagine an acquisition that suits BMW’s growth needs.

And if BMW decides to invent a brand, where would it fit and what sorts of cars/trucks would the brand have? But that’s not the only issue around inventing a brand – belaboring the obvious, any new brand requires that you build the brand, which takes time and money. Estimates of the time and money components just for the U.S. market usually run somewhere around 10 years and 100 million dollars in brand advertising alone to adequately get an automotive brand going.

It’s an ambitious plan BMW has laid out, but I am very interested in the tactical part of the plan, which is not available yet. BMW has done everything right ever since it rid itself of the Rover/MG millstone, so it would very interesting to be a fly on the wall at BMW in Munich these days, privy to what the guys there are cooking up. I can’t wait to see what the details of the plan are.

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Two-day strike is settled

Effect of the deal is expected to ripple out across industry

By Brendan Moore
with reporting by Chris Haak

09.26.2007

The United Auto Workers and General Motors have reached agreement on a new 4-year labor agreement that provides for a union-managed healthcare trust that would be funded by GM. Such a shift of healthcare responsibilities would signal a far-reaching change regarding the contentious issue of healthcare benefits at GM as well as the rest of the domestic auto industry, and brings to end a brief two-day strike that shut down all of GM’s US manufacturing operations.

The proposed fund would take over most of GM’s $51 billion USD unfunded obligation to health costs for their current population of retired workers. The agreement calls for setting up a Voluntary Employee Beneficiary Association (VEBA trust) that would make the long-term health-care liabilities from GM’s books go away, and pay the promised medical benefits for union retirees. Most Wall Street industry analysts agree that such an agreement would reduce GM’s costs by approximately $3 billion dollars per year.

Negotiating the agreement was a slow 23-day (12 of those days after the previous agreement expired) process – not counting the months of shadow-boxing the UAW and GM engaged in before they sat down at the negotiating table. The methodology of funding the trust is staggeringly complex and the funding ratio was ardently negotiated by both parties. The UAW had representatives from Lazard, the invest banking firm, to assist them with the negotiations around the funding issues. It is not known whether the contributions by GM will be made in cash or stock or some combination of the two, but what is almost certain is that there will be no funding contributions from GM’s employee pension plan. There are also built-in trigger clauses in the agreement that will serve to indemnify both the UAW and GM from paying too much if external events drive up the costs of their respective participations in the agreement.

Negotiations stalled concerning the funding ratios until GM starting proposing alternatives including reduced wages and employment, and at that point, the UAW became more flexible. Obviously, any agreement needs to be ratified by the 73,000 + members of the UAW, so the union is going with concessions most likely to generate the least amount of internal dissension. Many UAW-GM locals have lost over half their members to layoffs in the last 10 years, and so job security looms large for the UAW membership.

One huge plus for the UAW regarding a VEBA is the following: in a Chapter 11 bankruptcy, pensions can be fairly easily terminated and replaced with less expensive plans. Just ask the airline or steel industry employees. A trust, on the other hand, is protected. I am not suggesting that any of the Big 3 are in danger of bankruptcy, but there is no denying that their earnings results have been dismal for quite sometime.

Any VEBA deal that gets done between GM and the UAW will register as a seismic event in American industry (particularly the manufacturing sector) simply because of its magnitude. There have been other VEBA agreements recently, but their size is dwarfed by the potential UAW fund. It must be remembered that whatever happens with GM with almost certainly happen with the UAW workers at Ford and Chrysler (the three companies together lost a combined $15 billion last year). If GM and UAW agree to an approximate GM-funded rate of 70% of total liabilities (about $35 billion currently), and that agreement holds for the Ford and Chrysler UAW workers, that means the fund will start life with around $60 billion in assets. This, by the way, will make it one of the Top 25 funds in the country, and will necessitate a fund management investment firm, union fund managers as liaisons, administrative vendors to pay out benefits, etc. It will also be quite an event in the fund management industry as all the big players will be wooing the UAW for that business.

GM has about 541,000 UAW retirees and their fully-eligible spouses on their books right now, which costs the company around $5 billion annually, and their overwhelming preference is to pay the union to set up the desired VEBA to get those individuals and their health-care liabilities off their balance sheet. To give you an example of just how important the healthcare issue is to GM, David Cole, director of the Center for Automotive Research, recently told a news reporter, “If GM and Toyota could swap health care costs, that would be the equivalent of five new products a year [for GM]. The U.S. automotive industry needs good new product, and a lot of the new product is tied up in the cost of health care.”

The UAW, while not ecstatic about the idea of taking on the healthcare liabilities, was willing to agree to the VEBA for the quid pro quo of guarantees for GM to build current and future models in U.S. production facilities that use UAW labor. Ron Gettelfinger of the UAW stated that the VEBA will be adequately funded to pay benefits for 80 years.

Of course, the current GM-UAW negotiations were not just about healthcare. GM said previously that it suffers an approximate $25-an-hour difference in added labor costs when compared to its Japanese competition and only part of it comes from healthcare-related costs (Japan has national healthcare, as do the countries that produce cars in Europe). Those other costs, like wages and benefits, were also discussed during the current negotiations, but details are not available regarding the disposition of these contract items. A “two-tier” pay plan, one for current employees and one for all future employees, was also being discussed, but UAW officials have a very low level of interest in such a plan, so it most likely was shelved. And finally, the last part of the UAW-GM discussions centered on how large the “signing bonus” would be for the UAW members, which is the cash bonus they would receive from GM if they voted to ratify the deal.

The size of the signing bonus isn’t clear, but sources cited in this morning’s Wall Street Journal state that GM also secured agreement from the union to forego salary increases for the entire duration of the deal, and to receive 3%, 4%, and 3% lump-sum bonuses over the last three years of the deal instead.

Other provisions of the tentative agreement include:

• Substantial changes to the Jobs Bank. It will continue to exist, but there will be fewer people sitting idle in the bank for any length of time.
• A mechanism for GM to buy out many of its current workers and replace them with new employees at lower wages.
• The hiring of 4,000 to 5,000 current temporary workers at the full tier-one wage-and-compensation rate.
• A new, much lower new-hire pay scale for new workers hired after the temps are brought on board; perhaps even half of the current rate (but likely not for the skilled trades jobs).
• Specific guarantees of investment in US plants for future products.

Ratification votes are expected to begin as early as this weekend, at which point the UAW will decide which company – Ford or Chrysler LLC – it will negotiate with next. Of course, agreements with those companies are likely to come much more easily than the one did with GM, because they will likely be patterned off of the GM deal.

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By Chris Haak

09.25.2007

GM announced today that it has signed an agreement with Shanghai General Motors, one of its joint venture partners, to sell at least $800 million worth of sport utility vehicles and related parts and accessories in China under its successful Buick brand there. Of course, the only sport utility vehicle that Buick builds in the US is the new Enclave Crossover, and the deal calls for GM to export up to 25,000 Enclaves over four years, beginning in 2008. Also, the Enclave is arguably the only US-based Buick that does not already have a superior counterpart sold in China (the LaCrosse in China is a much more upscale, modern vehicle than the US version, and the Park Avenue in China is more luxurious, powerful, and modern-looking – not to mention rear wheel drive instead of front wheel drive than the US Lucerne.)

This deal comes on the heels of a deal that GM signed in May to export more than $700 million worth of Cadillacs from the US to China, bringing the total dollar value of GM’s US exports to China to over $1.5 billion.

Moves like this aren’t going to reduce the enormous trade deficit that the US has with China in any significant way, but it’s nice to see some “Made in America” products being sent to China, rather than the usual direction. Now, my only complaint is that China literally gets the “best of the best” in terms of the global Buick offerings. They have better cars than the US Buick lineup has, and now will also receive the US market’s superior crossover.

There has been some speculation that the timing of the announcement was intended to “throw a bone” to GM’s striking UAW workforce, showing that the company is doing what it can to find work for their assembly plants – and job security for their workers. Whatever the timing or motivation behind it, it’s nice to see GM talking more about sending vehicles to China rather than sourcing them from there, as Chrysler LLC has confirmed and Ford is rumored to be considering with its upcoming Fiesta.

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By Igor Holas

09.24.2007

Last week Ford unveiled a concept of a new small car – the Ford Verve, the first of three upcoming small car concepts; Verve very closely indicates the future Ford small car. While we can simply call the new car “Fiesta 8,” there is an underlying significance to this model – it will be the first truly global Fiesta ever, and the first truly global Ford car since the 1999 Focus and 2000 Escape/Maverick.

Europe will be able to see their production version of the car in Geneva in spring, and will be able to buy the car as a three or five-door hatchback by this time next year. In US, we will see our concept (as five-door hatch) in January, and a production version will be revealed a year later. The car will begin production in April 2009 as a five-door hatch and a sedan.

Until now it was widely believed that the car will be built in the new Ford Brazil plant in Camaçari. This state-of-the-art production site has the ability to build some 10 models at the same time, has an excellent quality track record, and excellent union relationships. However, it is already running at capacity and it was unclear to observers how Ford would increase the output from this plant; regardless, there were no other obvious options.

All that changed yesterday. During a speech at the opening ceremony of a new development center in China, Alan Mulally, Ford CEO, clearly stated that not only will the new Verve be produced in a new just-opened Chinese plant, but that export is “a possibility.” He did not specify the direction of such shipments, but clearly stated that in the competitive world of global automakers, ignoring the export opportunity of Chinese manufacturing sites would be a mistake.